Hedging at Porsche

by: Stefan Nagel

Publication Date: August 6, 2015
Length: 16 pages
Product ID#: 1-430-440

Core Disciplines: Accounting/Finance, Economics, Strategy & Management

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Teaching Note

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Porsche is taking in more money from its options strategies than it is from the sale of cars. Some of the earnings are on foreign exchange options, but a significant chunk of the profits is coming from the company’s huge stake in Volkswagen. Company executives argue they have built the stake in Volkswagen to fend off the takeover of its partner by another company, but others are crying foul, indicating that the company’s speculation is too risky. They are questioning whether the company is still a car manufacturer or if it has become a hedge fund. Students are asked to recommend the best course of action.

Teaching Objectives

After reading and discussing the material, students should:

  • Discuss the distinction between speculation and risk management and the extent to which companies should hedge risks.
  • Evaluate the impact of foreign exchange hedging strategies on the risk profile of a company’s cash flows from foreign sales and identify an optimal hedging strategy.
  • Assess the potential benefits and the risks involved in using options to build a stake in another company.
  • Analyze differences in interest between shareholders and management regarding the appropriate risk management policy.